FRED Blog: Healthcare Inflation vs. General CPI

In an interesting post from the FRED Blog, Healthy inflation?Inflation in the healthcare industry vs. general CPI, a comparison is set up between elements of the consumer price index, versus the rate of rising costs related to healthcare. The authors point out (what most of us have known for decades) that medical care has risen faster than the other components in the CPI basket:

Going back as far as the series are available, since 1948, the price of medical care has grown at an average annual rate of 5.3% while the entire basket, headline CPI, has grown at an average annual rate of 3.5%. In the past 20 years, in the regime of stable inflation, headline CPI has grown at an average annual rate of 2.2%, whereas the price level of medical care has grown at an average annual rate of 3.6%—about 70% faster.

The post continues addressing why this matters, beyond the obvious and anecdotal, namely, policy implications, impact to the average consumer, retirees and those with stagnant wages:

The implication of these two features is far reaching: It’s symptomatic of the increasing share of income the U.S. spends on medical care. Beyond macro trends, the features of these two series themselves have policy implications. Indeed, indexing government healthcare budgets to overall CPI rather than medical care prices has implications for spending in real terms. This gap could also widen during recessions, when government help may be most in demand.

This does not bode well given current policy discussions, as noted in the Wall Street Journal, “any replacement health plan that satisfied GOP conservatives was likely to be opposed by the party’s centrists, and vice versa.” See the full FRED post here.